Greece Seeks Debt Clarity as Creditors Resist Concessions

by Alessandro Speciale  and Viktoria Dendrinou
31 Μαΐου 2017, 6:27 μ.μ. EEST 1 Ιουνίου 2017, 1:12 μ.μ. EEST

Bloomberg

Greece may not be offered a substantially improved debt-relief package when euro-area finance ministers discuss its bailout in Luxembourg next month, officials directly involved in the negotiations said.

Euro-zone creditors are unlikely to commit to further details of measures beyond the extension of maturities in rescue loans that they discussed last week, the officials said, asking not to be named because the ongoing talks are private. Such a deal on its own might still not be enough to convince the European Central Bank to start buying Greek bonds, they said.



“What the Greek government is asking for is clarity on the debt issue, and this was not on the table” last week, Finance Minister Euclid Tsakalotos said at an Economist Conference in Frankfurt on Wednesday. Bank of Greece Governor Yannis Stournaras warned that Greece’s economy “cannot withstand the uncertainty of one more year on whether there is going to be some debt measures or not.”

That demand for clarity comes after euro-area finance ministers on May 22 failed to reach an agreement on how to ease Greece’s debt burden. Hopes for a deal that would also pave the way for the disbursement of funds to meet debt repayments in July are now pinned on the Eurogroup’s next meeting, scheduled for June 15.

According to the officials, it is unlikely that ministers will offer much-improved debt-relief terms compared to the ones presented in May. “Greece should reinforce ownership of the program policies instead of focusing on further debt relief,” European Stability Mechanism Chief Economist Rolf Strauch, said at a speech in Athens on Wednesday.

IMF Doubts

Greece’s creditors so far have been unable to resolve differences over the measures required to bring the country’s debt -- currently about 180 percent of gross domestic product -- back to a sustainable path. A compromise offered by the euro zone for an extension of up to 15 years was deemed insufficient by the International Monetary Fund. Its reluctance, in turn, was a deal-breaker for the Greeks due to the implications for the country’s inclusion in the ECB’s quantitative easing, and the signal it would send to markets.

At the Frankfurt event, Tsakalotos criticized the Washington-based lender for failing to state clearly what would be needed to overcome its doubts. “It is time for the IMF to make up its mind over what it wants to do,” he said.

Greece has fulfilled all its commitments toward its creditors, Prime Minister Alexis Tsipras said late on Wednesday, adding the country will allow a clear solution that allows a return to markets and bring stability.

A key point of contention stems from the creditors’ different views on Greece’s long-term economic outlook and what the country can sustain as a primary surplus, which excludes interest payments. The IMF has more conservative estimates about both these outcomes than Greece’s euro-area creditors, meaning it sees a need for greater debt relief.

Quantitative Easing

On Wednesday, the ECB also signaled it needs more visibility on the future path of Greece’s debt before it can include its government bonds in the institution’s asset-purchase program. While the Frankfurt-based central bank will conduct its own separate analysis, reaching conclusions that the IMF explicitly disputes could raise eyebrows.

“Timely clarity on debt measures and debt sustainability is important -- not only to restore trust in public finances but also to help rebuild confidence in the Greek economy more generally, and the financial sector in particular,” ECB Executive Board member Benoit Coeure told the Economist conference. “Clarity about debt measures is also a necessary condition for Greek government bonds to be potentially eligible” for the ECB’s quantitative-easing program, he added.

Without the confidence boost coming from ECB purchases, the country’s return to the bond markets could be costlier.

An agreement, if not a comprehensive one, could be still in sight for mid-June, despite the differences. European Union Economic Affairs Commissioner Pierre Moscovici said in a video message to the conference that euro-area creditors will do “everything they can” to conclude a deal next month.

“Greece is delivering on its side -- in terms of fiscal targets Greece is actually substantially over-performing,” European Commission Vice President Valdis Dombrovskis said in Bloomberg TV interview on Thursday. “It’s time to move forward, also for program partners, to conclude the second review and to disburse the next tranche.”